Stock of the day: Pro Medicus

(AI video summary)

This video was created on 4 December for IG audiences by ausbiz.

ASX code: PME

Insider moves and analyst upgrades

Pro Medicus continues to capture market attention, following news that its co-founders, Dr Sam Hupert and Anthony Hall, do not plan to sell additional shares in the foreseeable future. This announcement comes after the co-founders each sold 1 million Pro Medicus shares, representing 4% of their holdings, in a regular six-month pattern.

Adding to the excitement, Bell Potter upgraded its price target for Pro Medicus by almost 100%, now valuing the stock at $260. Despite the upgrade, the stock has already surpassed this level, reflecting strong market confidence. Bell Potter's analysts acknowledged their previous underestimation of the company's value, highlighting significant contract upgrades and market leadership as key drivers.

Record-breaking contracts

Pro Medicus recently signed a landmark 10-year, $330 million contract with one of the largest hospital systems in the United States. This deal follows a trend of exponentially growing contracts, reflecting the company’s success in transitioning from academic hospitals to larger public systems.

While Morgans raised its price target to $225, well below the current share price, the firm described the latest contract as 'shockingly large,' underscoring Pro Medicus’ ability to secure significant deals.

A high-quality yet expensive stock

According to Michael, a portfolio manager and long-time holder of Pro Medicus, the company remains a high-quality business with impressive growth figures such as revenues up 30% – 40%, and earnings are climbing at a similar pace. However, he admits that the valuation seems extreme, with a price-to-earnings (P/E) ratio far above historical norms.

Michael shared that Pro Medicus has historically provided opportunities for investors to buy during pullbacks of 30% – 50%, but recent performance has made such corrections rare. While he holds a 'hold' rating on the stock, he recommends waiting for a significant weakness before adding more.